Cheap milk and supermarkets

The declaration this week from a key dairying lobby group that supermarkets are not to blame for the troubles of dairy farmers is a welcome change from the usual efforts by an unholy alliance of rural groups, left-wing activists and conservative populists to demonise
Coles
and
Woolworths
.

When cost of living pressures are supposedly the issue of the day, this alliance has tried to demonise the supermarkets for selling milk too cheaply. But, as Australian Dairy Farmers president Noel Campbell told this newspaper, the real problem for dairy farmers is that feed and power costs are rising while their returns are being pushed down by lower international dairy prices and the high Australian dollar.

As
Richard Goyder
, the chief executive of Wesfarmers which owns Coles, has noted, selling milk for $1 a litre of itself cannot depress dairy farmers’ returns because they have the alternative of selling dairy products into the world market if returns from the local market fall below those available from selling offshore. About half of our dairy production is exported. Mr Campbell agrees “absolutely’’ with Mr Goyder.

Rather than bashing supermarkets, dairy farmers would be better served lobbying governments to help lower their cost structure and negotiate better access to world markets, particularly China. As Mr Campbell notes, New Zealand dairy farmers are experiencing a boom thanks to their free trade deal with China, the lower New Zealand dollar and a lower overall cost structure. Australia needs more clear thinking like this.